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GBP/AUD could break below 1.45 in the month ahead

By Westpac

Sean Callow, analyst at Westpac Global Markets Strategy Group, just released a note to clients making the case for a potential downtrend continuation on GBP/AUD, noting “it could well break below 1.45 in the month ahead” but warns that “a poorer risk environment into Q2 should push the pair back to 1.4950-1.5150.” He concludes saying: “Probes as high as 1.54 are quite possible but probably won’t be sustained.”

Looking at historical standards, Sean explains: “GBP/AUD is very weak with trade below 1.67 only occurring on 10.3% of all trading days since the AUD float in 1983, with closes below 1.54 for just 4.4% of trade. But fundamentals do argue for levels well below long term averages, especially given Australia‟s terms of trade is only modestly below the highest levels in over a century.”

The analyst expands on the bearish scenario: “Global financial conditions can turn quickly however, and Westpac retains a baseline call for a March cash rate cut. In the UK, headline inflation is expected to fall steeply and we don‟t
expect much improvement in growth (zero average growth in 2012) after the Q4 11 -0.2% q/q contraction. The
BoE may not raise its bank rate any sooner than the Fed lifts its funds rate.”

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